The District's Housing Market

District home prices have risen so rapidly that more than 80 percent of the properties for sale last year were financially out of reach for the average city household, according to a report by Urban Institute researchers released Tuesday, Washington Post staff writer D'Vera Cohn reports in Wednesday's article (Read more).

The report was commissioned by the Fannie Mae Foundation.

President and CEO of the Fannie Mae Foundation Stacey D. Stewart was online Wednesday, Nov. 16, at noon ET to examine the Washington, D.C., housing market.

The transcript follows.

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Stacey D. Stewart: Good afternoon and thanks for joining us. I'm more than happy to answer your questions about this year's Housing in the Nation's Capital report.

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Market correction: If 80 percent are out of reach, when will they start falling? Are rents also out of reach?

Stacey D. Stewart: It's difficult to tell when, or if, prices will start falling. However, the report does make it clear that rents are increasing very rapidly and are out of reach for many Washingtonians. Between 1999 and 2005, the rent on a 2-bedroom apartment in the region went up by 45 percent -- a bigger increase than in all but 10 of the nation's 331 metros. And in the District, rents have been going up even faster than they have been regionally. This is severely straining the budgets of many city renters. Between 2000 and 2004, the proportion of city renters paying at least half of their incomes for housing (considered severely housing cost burdened) went up from 18 to 23 percent.

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Alexandria, Va.: In light of the housing costs in the D.C. Metro area, how can local jurisdictions ensure the public safety of its residents and the provision of other local government services for its residents, if these employees reside elsewhere and too far to respond in an emergency?

Stacey D. Stewart: This is a huge issue facing many localities. Prices have moved up so far and so fast that key middle-income public servants - police, fire fighters, teachers - are finding it almost impossible to live in the jurisdictions they serve. And this is definitely a big issue facing the District of Columbia. Last year's Housing in the Nation's Capital showed that the number of neighborhoods in the District affordable to a family supported by a firefighter fell from 18 to only 12 between 1998 and 2002. This year's report shows that only 17 percent of the District's home sales market is now affordable to a family supported by the income of a school teacher, down from 33 percent in 2001. Part of what we're seeing is that affordable housing really does have an impact on the safety of our neighborhoods. I think we all would agree that having our public safety personnel living in the neighborhoods in which they work is generally a good thing.

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Fairfax, Va.: Do you see any slowdown for housing in the DC region (DC,MD,VA)?

Stacey D. Stewart: Future directions for housing markets are very difficult to predict. However, we can say that recent price trends in the Washington region have been very atypical historically speaking. For several quarters now, price increases have been greater than anything this region has seen in at least the past quarter century. And prices are now increasing so much more quickly than income -- in the most recent year prices rose by almost 20 percent but incomes increased by only about 1 percent -- that it's hard to imagine price gains are sustainable at this level.

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Washington, D.C.: Should a person who is priced out of this "red hot market" continue to rent ...waiting for the bubble to burst? Don't we risk missing the boat altogether? Should we buy way out in the "boondocks" in order to have something to hold on to?

I've been trying for almost two years to make this decision. I currently rent a small apartment in a neighborhood that I can't afford to buy in and live 10 minutes from work.

I can afford to buy an hour or so away from work in the boonies... By boonies I mean no public transportation within miles.

Stacey D. Stewart: We can't advise people on whether or not to buy, but what we can say is that for many families in this country, home equity has been the primary way in which to build wealth. It has proven to be an important way for families to have the resources to send a child to college, to pay for other important necessities of life, and to support future generations. Over this period of time where we've had incredible house price appreciation, much of that has been fueled by a historically low and sustained interest rate environment, which many people have found conducive to buying a home. We can't predict the future of house price appreciation, but if the past is any indicator of the future, we hope that homeownership will remain a very good investment for American families.

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Washington, D.C.: All the talk is about people moving into D.C. and driving up housing prices. But the Census Bureau finds that the DC population continues to decline - from 565,000 in 2002, to 558,000 in 2003, to 554,000 in 2004. Do you think that trend is reversing? Or are families are moving out and childless adults moving in, resulting in fewer people per housing unit?

Stacey D. Stewart: In terms of the population trends that you reference, the city disputes the Census Bureau figures. Also, housing demand in the city is clearly being supported by an increase in the number of households. Between 2000 and 2004, the number of households in the city has increased from 244,000 to 249,000. In terms of who's coming in, it appears that smaller households continue to dominate; the average household size in the city continues to decline slightly. There's no doubt that for many years, families have chosen to move out of the District not based on housing affordability but based on the quality of the schools and other issues as well. This is why it's important for the housing issue to be put in the context of improving the quality of many aspects of the city that attract a diverse population. Our report shows that of all the out-movers from the city, 45 percent were families with children; only 25 percent of in-movers were families with children.

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Bethesda, Md.: Montgomery County requires developers and builders to set aside some developing properties for low income housing. Does the District of Columbia have any similar requirements for developers?

Stacey D. Stewart: The District of Columbia is looking at a number of different ways to address the affordable housing challenge, including inclusionary zoning. In many jurisdictions around the country, inclusionary zoning has proven to be an effective method of insuring at least some production of units for low- and moderate-income families. Our report does speak to ways in which the District of Columbia might want to look at the various housing needs that exist in neighborhoods throughout the city and determine what tools need to be in place to address each challenge. For example, in some of the city's hotter neighborhoods where construction is booming, inclusionary zoning might be a good way to set aside some units for working families. In some other neighborhoods, like Mount Pleasant, preservation of the existing affordable stock might take priority, as by working with tenants who are seeking to purchase their buildings. The main point is that there is not a one-size-fits-all policy that will solve the affordable housing challenge in D.C. or in most jurisdictions around the country. It really takes a bundle of innovative tools to solve the challenge.

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Laurel, Md.: Greetings Ms. Stewart:

I closely follow events related to both Freddie Mac and Fannie Mae. I have 2 questions. Can you advise on how the recent accounting issues both companies have experienced will impact the work of their respective foundations. Finally, most of Fannie Mae's charitable work is focused on Washington, D.C., proper and is specifically focused on providing general operating support, can you advise if your foundation will expand its charitable efforts to focus on other geographic areas most notably the Gulf Coast area.

Stacey D. Stewart: Despite the challenges that Fannie Mae Corporation is facing, the Foundation has maintained our commitment to improving the quality for residents of the District of Columbia as we have for the past 26 years. Not only have we maintained this commitment to D.C., but in response to the recent challenges that so many families face in the Gulf Coast, we have made a substantial donation to the Red Cross and other organizations that have been providing immediate relief to displaced families and that will be providing long-term housing solutions to those families as well. As the nation's largest foundation dedicated to affordable housing, we maintain a strong commitment not only to our hometown but also to American families who are most challenged in finding safe, decent, affordable homes.

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Key West, Fla.: Unfortunately, this situation is not just the norm for the D.C.-Metro area -- all major cities are facing the same issues of affordability. As long as jobs are available and more and more people want to live in the area, homes will always be in demand. It is the basic economic principle of supply and demand. Perhaps the idea of owning a home will not be achieved by the majority and an understanding that to own a home is not the American Dream it once was. It is not a crime to rent and one should not take renting as a stigma that success is unachievable. We can' all be in the "haves" column - and people have understand that concept. Some will always be "have nots" and that class distinction is here to stay.

Stacey D. Stewart: It's important to recognize that over half of D.C. households rent, and meeting their housing needs is certainly important to the city's future. Whatever choice people make about housing, whether rental or homeownership, is not nearly as important as whether they in fact have a choice -- and if the opportunities for that housing are safe and decent and affordable. What the report really speaks to is the fact that many families are having a very difficult time finding housing in D.C. that's affordable. Last year, one-quarter of D.C. renters paid at least half of their income for housing. In addition, there are 15,000 individuals in the greater metro area without housing on any given day, and many more thousands who are on the verge of becoming homeless. Providing low-cost rental homes is key to meeting our region's housing needs. Having the opportunity for safe, decent housing -- whether homeownership or rental -- is indisputably one of the greatest goals of every American. Our report simply shows that this goal is increasingly becoming out of reach for many Americans -- and many D.C. residents.

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Falls Church, Va.: Part of the problem is that the suburbs of D.C. are no longer an option for those priced out of living in the city. Fairfax County is outrageous and high prices are sweeping across Northern Virginia out to Loundon County and beyond like wildfire in a wheat field. Everything being built are either luxury townhouses, which has to be the stupidest phrase I have heard lately, or expensive yet tiny condos. I don't want to live the rest of my life in an apartment, but I don't see that I have a choice in this area. My husband and I plan to move elsewhere when we want to raise a family.

Stacey D. Stewart: This is where we begin to see how affordable housing challenges can constrain the growth and vitality of the metro area. The report shows that Washington, D.C., is one of the nation's strongest regional economies, but that isn't guaranteed to last. But if trends highlighted in our report continue, they could put our region's future prosperity at risk. While this year's report focuses on D.C., in prior years, this report has looked at the housing issue regionally, and we do believe that regional solutions need to be enacted to reverse the trends.

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Washington, D.C.: You mentioned an affordable housing preservation plan of tenants purchasing their building. How you see limited equity co-op conversions with low share prices fitting into this strategy as opposed to condo conversions?

Stacey D. Stewart: The advantage to limited-equity co-op conversions is that they allow already existing residents to purchase their own units, and gain an equity stake, as opposed to potentially being displaced. The report points out that in certain hot markets in the city, such as Mt. Pleasant and Logan Circle, assisting existing tenants in purchasing their buildings can be a key affordable housing preservation strategy.

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Woodbridge, Va.: I just thought about something. How are residents of D.C. being priced out? I know I moved to Woodbridge because I couldn't afford anything in NW within the last two years. If these "residents" have lived in the city for more than five years than they should be reaping the benefits if they bought something. So the only people that are being priced out are newcomers. I can't believe that rents have gone up substantially. When I think of a resident, I think of my grandmother who has owned her home for 24 years and is definitely not complaining about the increase in property values.

Stacey D. Stewart: There's a good side and a bad side to increasing home price appreciation. You're right -- for many families who've owned their homes, especially prior to the boom since 1999, they are now enjoying a significant amount of equity. However, for many families who have wanted to purchase a home in D.C. recently, this opportunity to build equity is increasingly difficult. As for rents, in the region, the typical 2-bedroom apartment now rents for almost $1,200, up 45 percent since 1999. If one isn't in the market for housing right now, one may not feel the pressures that many families feel who are seeking affordable homes. But there is also a grave concern about the numbers of seniors, who despite having a lot of equity, have lost their homes -- or many more who may lose their longtime homes -- because they are on fixed incomes and can't afford their property taxes.

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Washington, D.C.: Thanks for taking my question.

I am of the mind set that the District is finally catching up (after years of neglect) with the rest of the major U.S. cities as far as real estate and prices. Yes, rents and mortgages are high in this area but compared to New York, Boston, Chicago, LA, Seattle, etc., we are becoming more aligned with where we should be.

Do you hear people in Boston or NY talking about affordable housing as much as D.C. does?

Thanks

Stacey D. Stewart: Yes. What Boston and New York and other high-cost cities, particularly on the coasts, are experiencing is the same situation, if not worse, that we're facing here in Washington, D.C. In most of these cities, there are substantial efforts in place to raise the awareness of the affordable housing challenges. There are also many coalitions that have been formed among local governments, businesses, housing advocates, and major employers to address these issues. Just about every city that is experiencing an affordable housing challenge is struggling, as we are, to understand the problem and do something about it. Our report is intended to help inform our local community of the challenges we face and begin the dialogue on solutions that can be put in place. Housing advocates have always cared deeply about these challenges, which have been around for a while, but now that the challenges have become increasingly difficult, it's affecting others as well. For example, employers feel the strain of a lack of affordable housing because many of their employees aren't able to live in close proximity to where they work, making it difficult to sustain a reliable workforce. So Washington, D.C., is similarly positioned in facing these challenges and developing solutions.

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Stacey D. Stewart: Thanks for participating in our discussion today. What we stimulated today in terms of thoughts and ideas is exactly what we hoped for in issuing this report. Our role in Washington, D.C., is not only to provide financial support for philanthropic purposes but also to serve as a leader in informing and educating our community on challenges that we face and ways in which to improve the quality of life for all of our residents. I'd also like to thank Margery Turner and her team at the Urban Institute for helping us produce this year's report and also thank you to The Washington Post for this opportunity to chat about it. If you'd like to see the Housing in the Nation's Capital report, go to www.fanniemaefoundation.org

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